Aiming high

Private equity (PE) activity in the professional services sector has been as prolific as it has been well documented. Attracted by non-cyclical revenue streams, consolidation opportunities and tech investment potential, PE houses have invested in accountancy firms Grant Thornton, Evelyn Partners, Cooper Parry, Dains and SMH Group in the past year in the UK. Private equity firm New Mountain has invested in Grant Thornton in the US. Similar investment in law firms Slater Heelis Solicitors, Beyond Law, Stowe Family Law and FBC Manby Bowdler has also hit the headlines. 

Having doubled in size over the past six years to become the 13th biggest accountancy firm in the UK, MHA – the UK member of Baker Tilly International – was looking to accelerate growth and break into the top 10. Access to external capital would fuel that, but the question was whether to go with private equity investment or the less popular IPO route. Over 20 years ago, RSM Tenon and Vantis had listed on AIM and pursued consolidation strategies, which ultimately failed.

Both options were open. “The firm had been approached by PE houses and nominated advisers. We were gaining a higher profile in public company and international work, and the services we provide. Two years ago, we were approached by the Stock Exchange,” says Robin Stevens, senior adviser, MHA.

Big decision

Following further discussions, the senior team at MHA met with Cavendish, which went on to become the nominated adviser and sole broker on the deal. “We worked with them looking at the pros and cons of the different processes. They were attracted to IPO as a model by which they could access patient capital from supportive long-term investors,” says Stephen Keys, Cavendish’s head of corporate finance.

The main difference between private equity investment and an IPO is governance structure, explains Jeremy Swift, partner at law firm Freeths, which provided legal advice to MHA. “Private equity investors like to retain a tight degree of control over day-to-day operations, which can affect the culture. Accountability comes through investors rather than an investment agreement. The stock market brings checks and balances at a high level,but not control on day-to-day operations. That governance structure works well for more collegiate businesses like MHA, where all partners play a role in the governance and decision-making of the organisation, or businesses that prefer a form of autonomy with the inevitable accountability.”

As part of the pre-deal decision-making process, Cavendish and the MHA team, led by CEO Rakesh Shaunak and CFO Steve Moore, met a number of investors in a ‘no deal’ roadshow to gauge interest. The feedback was positive and the IPO route was put to the partners. 

“Steve and Rakesh spoke to every UK partner individually and made sure they were as informed as possible. In parallel we were starting to work on the numbers, while getting the external advisory team in place. By early November 2024, we were ready for the partner vote,” recalls Stevens.

Shaunak and Moore are both chartered accountants. Moore has been a partner with the firm for more than 35 years; Shaunak joined 30 years ago from BDO, and had been group chairman since 2011. Following a near unanimous vote, the listing process began. “We undertook extensive legal due diligence across the group. Given its multi-jurisdictional nature, we had to deal with the requirements of regulators in the Cayman Islands, the Republic of Ireland and the UK, and there was also a US offering,” says Swift.

Process challenges

Other complexities came from restructuring the partnership into a limited company. Crowe acted as reporting accountant, providing financial and tax due diligence for MHA and its nominated adviser, Cavendish, to ensure compliance with regulatory requirements and to support the ‘public’ opinions required in the admission document. “Over the past decade, MHA has also made a number of acquisitions, including some in 2024. Not surprisingly, these had not all been fully integrated, so there was some work to do to align internal reporting,” says Mitesh Patelia, corporate finance partner at Crowe. 

Regulatory approval was another unusual hurdle. “Regulatory approval from ICAEW and FRC does not normally form part of an IPO, and was an element outside our control,” says Keys. “The deal was a big beast that had to be managed all the way through.”

How the deal was priced came down to supply and demand, says Stevens. Cavendish produced a broker’s note outlining their expectations for growth. MHA held more than 100 investor meetings. Following a final roadshow in March, the book was built based on a price that matched partner expectations. Put simply, there was a price at which MHA partners were prepared to sell and the fund managers were prepared to buy.

On its April listing, MHA raised £98m at a £271m valuation. The float was pretty exceptional given the prevailing market conditions. Just as the book had closed, the Trump tariff announcements were made, causing “a whole raft of volatility and liquidity issues”, says Patelia. “Fund managers were focused on the impact on their existing portfolios rather than looking at new companies. But Cavendish did an excellent job in terms of holding on to the book.” 

“The advice is always ‘if the money is there, you should take it,’” says Keys. The time around ‘Liberation Day’ was such a volatile situation and, if we had waited, there was no certainty the IPO would be possible later. We had the opportunity to work hard and get to the finish line and we took it.”

Aside from being “an exceptionally well-managed deal”, Stevens attributes some of the success to the level of involvement the team had with investors. “We kept test marketing. Rakesh and Steve would meet investors on a regular basis, and we were as close to the market as we could have been. We had a good appreciation of who the likely investors were going to be, and their level of interest, which gave us confidence. Cavendish maintained that interest up to the point we had regulatory approval and were ready to go.”

Next stage

Of the net proceeds (after fees) of £89.4m, £34.2m paid off 19 retired MHA partners and £42.6m paid down the partner loan notes of certain continuing partners, while £3m has been earmarked for investment in technology and £9.6m for further bolt-on acquisitions.

Another aim, if it is to grow, is to retain and incentivise staff. Some MHA members and employees have already invested through the retail offer. An employee benefit trust (EBT) has been created, to ease the partnership process. As Stevens explains, a partnership can be very expensive to buy into. “The EBT, funded by the partners, will help that process by making awards of shares as people progress. And, in time, it will be a means for us to buy back shares from retiring partners.” Ex-head of equity capital markets at KPMG, Linda Main, has joined the board as a non-exec.

Commitments to retiring partners aside, a top priority is expansion. The deal was followed closely by the announcement of the proposed acquisition of Baker Tilly south-east Europe. “Clearly, there seems to be a consolidation play as the international professional services market evolves, not least perhaps in the Baker Tilly international network aiming to be more integrated and joined up in the services they offer to clients across borders,” Patelia notes.

Between 2022 and 2024, MHA completed seven acquisitions. The listing document highlighted that the UK accountancy market “remains fragmented and presents further opportunities for selective bolt-on acquisitions”. Cross-border acquisition opportunities were specifically mentioned.

Corporate finance partner Rob Dando sees that from the raising of external capital, MHA will be able to compete for M&A opportunities with other participants in the UK and overseas markets, particularly those backed by private equity. “We now have an attractive model, deployable capital and a desire to continue our growth both organically and inorganically. We can acquire businesses in different geographies and attract new talent in service areas we may not yet have. From my personal perspective in my corporate finance and transaction services area, that gives us the opportunity to increase cross-border collaboration and cross-border transactions.”

The move will benefit all service lines, believes Swift. “MHA will become recognised domestically and internationally. Being listed in London gives it a huge profile, which every service company craves.”

“It’s amazing how much credibility it gives you in a meeting to be able to say you have been through your own IPO and raised £100m on AIM,” adds Stevens. “It’s a very persuasive selling point.”